Posted by Mike Smith :: July 19, 2007 @ 1:32 pm

Among the many benefits of a P2P loan from Lending Club, there is one that hasn’t been discussed much to date. Borrowing money through Lending Club, rather than simply borrowing directly from a friend, will help you build your credit history.

Building your credit history will help improve your FICO score. This in turn helps to establish your credit-worthiness. This score ultimately determines the interest rate that you can expect to receive when applying for credit in the future. As we reported recently, the removal of authorized user accounts from consideration in determining FICO scores has had the side effect of limiting the credit history of many consumers.

If you are considering borrowing money from a friend, you may be much better off setting up the loan through Lending Club. Noted in a recent advice article on Kiplinger’s website, private loans (made directly by a family member or similar source), won’t improve your credit history. With Lending Club, your history of successful repayments grows with each on-time payment you make, and this will improve your credit score. Since Lending Club handles the payments, you can avoid the awkwardness of having your friend ask for your payments every month.

Another benefit of using Lending Club is that person-to-person loans generate interest payments to the very people who are helping you out. When you borrow at a bank, the interest you pay increases the bank’s profits. Since your loan is likely to receive funding from people who are connected to you, Lending Club really does enable friends to help friends.

Setting up the loan is quite simple. For a primer on how to get started, take a look at the “How it Works” page. You can gain something much more valuable than just the money you receive for the small overhead of setting up a loan through Lending Club. By repaying your loan on-time you can also strengthen your credit history. This can significantly improve your financial prospects for the future.